Corona shock: Week II

The British economy is still deteriorating – and the worst is yet to come for our tourist towns

By Chris Cook, Ella Hollowood and Chris Newell

The UK economy remains sprawled on its back. The latest week covered by our Corona Shock tracker suggests that household spending is continuing to drift down. It now stands 39 per cent below where it stood in the same week of last year.

Methodology

What data have you used?

How are we doing this?

Data represents total sales linked to geo-tagged consumer-facing merchant IDs for active debit card customers in England and Wales. We have received the data from Social Investment Business in an anonymised form and aggregated by electoral ward (2017 boundaries), of which there are 8,315 in England and Wales.

We have also, in our under-the-bonnet analysis, checked these results against other geographies. We have checked that our analysis is robust by comparing across different definitions of time period and different choices of geographical boundary.

We have supplemented local economy sales data with labour force data from the Annual Population Survey, international tourist visits from Visit Britain and student enrollments from HESA.

What time frame are you looking at?

Data compares sales in the latest week available with the equivalent week last year. The dates for each week of data we have received are as follows:

Week 1: Wednesday 25 to Tuesday 31 March, inclusive

Week 2: Wednesday 1 to Tuesday 7 April, inclusive.

Week 3: Wednesday 8 to Tuesday 14 April, inclusive.

What are the limitations of the data?

The bank accounts are all UK-based, and therefore the data does not account for international spend. The data accounts for a substantial share of consumers (never less than 12 per cent of an area’s bank account holders, and up to 27 per cent). But the sample is not constructed to be representative.

The data is partial: it is a sample showing how consumer spending is developing – just one part of the economy. There are also complications which we are working around – and themes we will explore in the coming weeks.

There are also distortions in the data from online business. Giving Amazon, for example, a single location does not reflect how that business is organised or where the economic activity of a sale is happening. Some online businesses are also just intermediaries. This effect will tend to mean our estimates of regional effects – outside a few places – are slightly overstated.

Almost of all of the fall happened in the first week of lockdown in late March, when spending tumbled by 35 per cent. The scale of the shocking fall demonstrates the remarkable manner in which Britain suddenly shut down its high streets and sent lots of its workers home. Sales are, however, still slowly drifting down.

This analysis is based on the outgoings from a large sample of UK bank accounts – and data showing where the spending is going. This data, shared with Tortoise by SIB, a regeneration charity, would normally be a flow of about £50bn of spending per year – roughly 4 per cent of all UK household spending.

This latest data covers the period from 8 to 14 April.

The overall picture is that, after the initial shock, there has been some deepening of the losses:

The heaviest losses are accruing, as before, to tourist-heavy towns. Penrith in the Lake District remains the hardest-hit town (including its hinterland) in England and Wales. Its sales are down 71 per cent on the same week as last year.

Brighton and Oxford are still scoring the biggest losses of larger urban areas. Both are victims of the double-effect of being university cities without students and tourist centres with no visitors. Losses in Bath, another double-hit town, are rising – from a 50 per cent loss to 59 per cent.

Of the big cities, Sheffield and Bristol are the hardest hit. The cities – which have large student populations – are recording 49 and 47 per cent losses respectively.

Across the 177 economic areas we are monitoring in England and Wales, all but 45 were within 5 percentage points of the losses they recorded last week. That is, itself, quite noteworthy when you consider the lunar calendar.

Methodology

What is a town?

There are towns in the UK whose residents argue endlessly about where the towns really begin or end. We have had to wade into this argument – and we have chosen a slightly unusual set of definitions.

We have grouped detailed local spending data into geographic regions known as “travel to work areas” (TTWAs). These are areas devised by the UK government. The idea is, in effect, to redraw town boundaries so they represent the economic reality on the ground.

Each zone is, in economic terms, supposed to be one single place. Most of the workers who have a job in a TTWA will also work in it. And most of the people who live in a TTWA will have their jobs there.

These areas were devised using 2011 census data, there are currently 173 travel to work areas in England and Wales, of which 149 are in England, 18 are in Wales and 6 are cross-border.

There are always going to be problems with where the borders go – and people who resent being put into a Greater Liverpool (or letting other people in). But, for us, these definitions have a few significant advantages.

This week, we are looking at the national, regional geography of the macroeconomic impact. We want to see the places where people tend to live together with the places where they tend to work.

If we used normal borough borders, some cities would look very bad simply because their suburbs, where things might a bit healthier, happen to be classed as part of a neighbouring town.

A nice side-benefit of this approach is that it means we have coverage of the whole country. Everywhere is part of a TTWA – even if it is small and rural.

The week we are tracking – the week ending on the 14th April – included Easter. But the comparison week last year was two weeks before Easter. We are comparing sales in a week with two bank holidays to a week with none. It is startling how little effect it seems to have had. A feature of the lockdown is that it appears people did not change their spending habits over a long weekend.

The timing of Easter has another effect. The Easter holidays both mark the start of the tourist season and are a busy time in themselves for resorts. That means losses in tourist areas are likely to be understated this week because we are comparing Easter week this year to a period before Easter last year.

Some of the most significant movement in the table is visible in towns where the holiday season started very early last year – unusually long before Easter. Take Pwllheli and Porthmadog in North Wales – home of places including Hafan y Môr, a family holiday park.

This year, weekly spending in that area in our sample has remained beached at around £300,000 a week during the first three weeks of lockdown. It has scored rising losses in our tables because last year, over the equivalent three weeks, spending rose steadily from about £600,000 to £750,000 a week.

In addition, our data does not include foreign tourists. The situation is dismal, and it will not get better soon. There are parts of the country where it is hard to imagine a more brutal economic shock than the one we are going through.

In the West Country, each week is bringing rising pain. We have had Easter come and go – but not the visitors. Cornwall may be the biggest economic British loser from the lockdown.

The duchy is unusually exposed to tourism: accommodation and food services directly contribute 16 per cent of Cornwall’s employment. But the impact of visitors is much larger, a thread that pulls through its outsized real estate, construction, food and farming sectors.

Deep into the county, right at the peninsular’s toe, the loss of tourism is already a serious problem. Compared to the same week last year, the Penzance area, which includes the Isles of Scilly, is the second-hardest hit place in England and Wales.

Weekly sales last week in Penzance were down by 69 per cent. Non-grocery spending in the area is down by 89 per cent. The loss of tourist income is rippling through the town and isles – and, without robust action, it will have repercussions for years to come.

This should have been Penzance’s year: it was awarded “Town of the Year” by the Academy of Urbanism for 2020. It has been making the most of its endowments – its scenic location and position as the gateway to Land’s End and the Isles of Scilly, but also its Georgian and 1920s quarters.

The Jubilee Pool, a community-owned art deco saltwater lido, has been renovated and reopened with a geothermal spa. The lido – and other creative outlets – are an attempt to make Penzance more secure by stretching the visitor season. But the town wants more. It has plans to leverage train links, architecture and fast internet connections to pry creative workers out of bigger towns.

This crisis, however, could be a brutal setback. A major problem is the seasonal nature of the local economy. Part of its appeal to visitors is the number of unique local businesses. But their small size means they have little resilience.

Jess Morris, manager of the Penzance Business Improvement District, says that good businesses are worried that losing the summer means, in effect, “three winters in a row” for the town. Even if businesses can be kept going through the immediate crisis, there is a worry that they will not survive as far as next year’s high season.

Emmie Kell, a charity leader and a board member of the Cornish regional development agency, says: “a lot of people are banking on the fact that they’ll be moving out of their house over the summer – perhaps moving back in with parents or, for some people, into a camper van – to rent their house out on AirBnB…. How are they going to pay their mortgages once we get through the summer months?”

Households are vulnerable, too. Susan Stuart, chair of the Jubilee Pool and vice-chair of one local regeneration body, says: “for the average person, there are a lot of people and a lot of businesses who struggle across the winter and rely on the summer. So a lot of people might have… a job that keeps them going through the winter, but four or five part-time jobs in the summer which helps them to get through the winter.”

There is a subtler problem for tourist towns, too. Lots of people take seasonal work, so will not have been paid before mid-March. That means that those posts are not eligible for the government’s job retention scheme. As a consequence the scheme – “furloughing” – will not help. People will be made redundant – or workers will not be hired.

There has been some bespoke action for Cornwall: last week, the government announced financial support to keep the ferries running to the Isles of Scilly. A group of workers, some from Penzance, recently went to the Isles of Scilly for the tourist season – only to be stuck there with no work, no incomes and struggling to get home.

To illustrate some of the dynamics of the issue, we have shown the losses in towns along the route of the train line from London to Penzance. For each station on the route, we have calculated estimates for the decline in total spending within a 20-minute drive (the zone around London Paddington encompasses a large portion of West London).

From London, the train
races across the central
south of England

It reaches Somerset,
where it starts winding
through scenic West
Country towns

Plymouth is the last stop
in Devon, before the train
moves into Cornwall

As the train line moves through the country, there are some really significant places to note. The area around Exeter – another university city – has had a dismal time. Exeter University is a critical piece of economic infrastructure in the South West, supporting campuses in both Devon and Cornwall. The city, with no students and no tourists, is in serious trouble. As it heads west from there, the losses stemming from the tourist economy start mounting rapidly.

A lot of places that might be very badly hit have very little resilience: seaside towns are a notorious problem in British public policy. Nick Temple, chief executive of SIB, says that this is “the time to start planning for the post-covid recovery: a recovery that needs to be fairer, not just faster. The challenge now is not just to ‘level up’ but to rebuild our social infrastructure in the communities that need it most.”

Britain needs systematic action for its pretty cities, its seaside towns, its lakes, its peaks and islands.

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